|Ruling number||LT 003|
|Date issued||21 July 1987|
|Issued by||AD Clyne |
Chief Commissioner of Land Tax
|Effective from||1 January 1984|
|Effective to||23 October 2013|
|Status||Replaced by Revenue Ruling LT 003v2|
The Land Tax Management Act 1956 was amended in 1983 to incorporate new provisions dealing with grouping of related companies for the purpose of assessing land tax payable by such companies.
Under land tax legislation, liability for land tax is incurred if a person (which includes a company) owns land (other than exempt land), the total value of which equals or exceeds the taxable threshold. The threshold for 1986 and 1987 is $94,000.
The grouping provisions for related companies are primarily intended to prevent tax avoidance by splitting land holdings among two or more commonly owned or controlled companies to obtain the benefit of the Schedule rate of tax for each company.
In summary, subsection 29(l) of the Act provides that a company is related to another company if -
one company controls the composition of the board of directors of the other company or if the same person controls the composition of the board of directors of each of the companies; OR
one company is in a position to cast, or control the casting of, more than 50% of the maximum number of votes that might be cast at a general meeting of the other company or if the same person is in a position to cast, or control the casting of, more than 50% of the maximum number of votes that might be cast at a general meeting of each of the companies; OR
one company holds more than 50% of the issued share capital of the other company or the same person holds more than 50% of the issued share capital of each of the companies; OR
more than 50% of the issued share capital of one company (the first company) is held by the other company together with its shareholders and the proportion of the issued share capital of the other company held by shareholders of the first company exceeds the difference between 50% and the proportion of the issued share capital of the first company held by the other company; OR
both companies are related to a common company.
Companies may be related to each other even if one or more of those companies does not own land in New South Wales eg. where a company which does not own land in NSW is related to two or more companies which do own land in NSW, all of those companies form a single group. This is true even though the companies owning land may be related to each other only by virtue of being related to the company which does not own land (see paragraph 4(e) above).
A reference to "issued share capital" in section 29 (see paragraphs 4(c) and 4(d) above) does not include a reference to issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital. This is an anti-avoidance measure to counter such arrangements as using preference shares to reduce a person s interest in a company to 50 per cent or less of the issued share capital.
Any shares held or power exercisable by any person or company as a trustee or nominee for any other person or company shall be treated as also held or exercisable by that other person or company.
Any shares held or power exercisable by virtue of a debenture issue, or by virtue of a loan transaction where the ordinary business of the shareholder includes the lending of money and the shares are held or the power is exercisable only by way of security for the loan, are to be disregarded for the purposes of determining whether or not companies are related under the rules in paragraph 4 above.
Where a person or another company is empowered to appoint or remove all or a majority of the Directors of a company, that person or other company is to be regarded as controlling the composition of the board of directors for the purposes of the test in paragraph 4(a) above.
Under section 29 the Chief Commissioner has a discretionary power in assessing the tax payable by related companies of a group:
to assess all of the companies separately;
to assess all of the companies jointly; or
to assess any two or more of the companies jointly and the remainder separately.
Subsection 29(3)(b) requires the Chief Commissioner to classify one company of a group, or where a joint assessment is made, those companies jointly assessed, as a concessional company. The remaining companies (if any) are classified as non-concessional companies.
Where two or more companies are jointly assessed, those companies are deemed to be a single company for the purposes of the assessment, and a single notice of assessment will be issued.
A concessional company is assessed at the rates set out in the applicable Schedule of the Land Tax Act 1956. For example, for 1986 and 1987, tax is payable at the rates set out in schedule 3 of that Act, ie. at the rate of $100 plus two cents for each dollar of the taxable value of land owned in excess of $94,000.
A non-concessional company is liable for tax at the maximum rate set out in the applicable Schedule of the Land Tax Act 1956. The maximum rate for 1986 and 1987 is two cents for each dollar of the taxable value of land owned.
The combined effect of these provisions is that the total tax payable by companies in a group is equal to the tax that would be payable if a single company owned all of the land owned by the related companies in the group.
The usual practice is that only one company in a group will be Classified as a concessional company. The remaining companies will be classified as non-concessional companies and separately assessed at the maximum rate applicable, on the total taxable value of land owned. The exception to this will be where no individual company owns land with a taxable value high enough to attract the full benefit of the Schedule rates of tax. In these circumstances it will be necessary to jointly assess two or more companies as the concessional company so that the group may obtain the full benefit of the rates of tax specified in the respective Schedule of the Land Tax Act.
In most circumstances the Chief Commissioner will accept the company nominated by a group as the concessional company provided the value of the company's land is high enough to attract the full benefit of the Schedule rates of tax. If no company is nominated, the Chief Commissioner will select one or more of the companies in the group which holds land with a taxable value high enough for the group to obtain the full benefit of the Schedule rates of tax.
Where a non-concessional company is a joint owner of land, the classification as a non-concessional company will be disregarded for the purpose of a joint assessment under section 27. This means that the tax will be calculated in the joint assessment at the rates set out in the respective Schedule of the Land Tax Act. However, the separate assessment of the company will be at the flat rate applicable to non-concessional companies.
Where companies have been grouped for the purpose of a land tax assessment, subsection 29(5) provides that the companies, whether assessed separately or jointly, shall have such rights of contribution or indemnity between themselves as are just.
Liability of a company in which land is vested as a trustee would be examined under section 24 of the Land Tax Management Act 1956.